The Discount Retail Champion: Dollarama's Q1 Surge and the Playbook for Global Dominance

In a retail landscape littered with closures and markdowns, Dollarama (DOL.TO) is proving that value-driven retail isn't just surviving—it's thriving. The Canadian discount giant just delivered a Q1 earnings report that screams resilience, with a 4.9% jump in same-store sales and an 8.2% revenue surge. This isn't just a flash in the pan: Dollarama's strategy to double down on consumables, expand stores like wildfire, and conquer new markets is a masterclass in retail defense in an inflationary world. Here's why this stock is a buy—and how to play it.

The Power of the $1 Aisle: Why Consumables Are the Secret Sauce

Dollarama's Q1 results weren't just about bigger numbers—they were about smarter numbers. The 4.9% same-store sales growth (up from 3.7% in transactions and 1.2% in basket size) was fueled by one thing: consumables. In a time when consumers are pinching pennies, essentials like cleaning supplies, snacks, and health products are non-negotiable. This isn't a fad—it's a structural shift. As CEO Neil Rossi noted, “Our focus on everyday essentials aligns perfectly with what customers need in tough times.”

The proof? Consumables sales grew faster than discretionary items, and seasonal products like Easter goods hit their marks. Even better, Dollarama's gross margin expanded to 44.2%—a testament to operational efficiency and lower logistics costs. This isn't just about keeping prices low; it's about owning the category that customers can't cut back on.

Expansion on Fire: 70-80 Stores in Canada, and the Mexico Play

Dollarama isn't just sitting on its Canadian throne. The company is attacking growth with a vengeance. In Q1, it added 22 net new stores, bringing the total to 1,638 locations. But the real game? The 2026 plan to open 70-80 new stores—a 4-5% increase in its footprint. This isn't reckless; it's math. With same-store sales still growing (even if slightly slower than last year), the formula is clear: more stores = more top-line growth.

But the bigger play? Mexico. Dollarcity, Dollarama's 60.1%-owned venture, is set to open its first stores there soon. Yes, there will be growing pains—management admits initial losses over 1-2 years—but the prize is massive. Mexico's population is over 128 million, and Dollarcity's model (focused on consumables and affordable goods) has already worked in Latin America. If they crack Mexico, the playbook for other markets like Brazil or Colombia opens up.

The International Land Grab: Australia Next?

While Mexico is the next frontier, Dollarama isn't stopping there. The proposed acquisition of The Reject Shop (TRS) in Australia—a 2,000-store discount chain—could close by July. This isn't just a geographic play; it's a category play. TRS's strength in fashion and electronics complements Dollarama's consumables focus, creating a global powerhouse.

Risks? Sure. But the Upside Outweighs Them

No stock is risk-free. Mexico's market could be tougher than expected, and TRS's integration might hit bumps. Supply chain hiccups or a sharp rise in logistics costs could crimp margins. But here's the kicker: Dollarama's net debt-to-EBITDA ratio of 2.03x is healthy, and its Canadian business is a cash machine. Even if Mexico underperforms, the core business is too strong to ignore.

Investment Thesis: Buy the Dip, Target $200+ by Year-End

This is a defensive stock with offensive growth. In an inflationary environment, consumers will always prioritize essentials—and Dollarama owns that space.

Buy now, especially if the stock dips below $180 (its current price is ~$190). Here's how to play it:
- Short-Term Target: $200 by December 2025 if they hit 80 new Canadian stores and Mexico's stores open smoothly.
- Long-Term Upside: $250+ if Dollarcity proves its Mexico model and TRS adds Australian scale.

Avoid waiting for perfection. The Q1 results show that Dollarama's strategy is working—don't let short-term store growth dips scare you. This is a buy-and-hold name for the next decade.

Final Take: A Discount Retail Titan with Global Ambitions

Dollarama isn't just a one-trick pony—it's a category killer with a playbook to dominate in every market it enters. With consumables as its moat, stores as its engine, and Mexico/Australia as its next frontiers, this stock is a must-own in any defensive retail portfolio. The question isn't whether to buy—it's why aren't you in yet?

Bottom Line: Dollarama isn't just surviving—it's out-executing in a tough retail climate. This is a buy at these levels, with targets tied to store milestones and Mexico's success. Don't miss the boat.